Michele Corchado v. Foulke Management Corp.
707 F. App'x 761
| 3rd Cir. | 2017Background
- Plaintiffs (Appellees) signed copies of retail contract documents containing stand‑alone arbitration agreements; they later sued defendants Foulke Management Corp. and Wells Fargo Dealer Services.
- Defendants moved to compel arbitration and stay the district-court proceedings.
- Plaintiffs submitted sworn declarations claiming they were unaware of the arbitration terms, prevented from reading the documents, and were fraudulently induced to sign the arbitration agreements.
- District Court denied the motions to compel and authorized limited discovery on the parties’ intent to be bound by the arbitration clauses.
- Defendants appealed the denial of the motions to compel; the Third Circuit affirmed the District Court’s order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether signatures on the agreement conclusively show assent to arbitration | Signatures do not prove intent when plaintiffs say they were misled and couldn’t read the agreement | Signatures establish assent and require arbitration | Court held signatures are not dispositive; plaintiffs’ sworn allegations place arbitrability in dispute and warrant discovery |
| Whether plaintiffs specifically alleged fraudulent inducement of the arbitration clause itself | Plaintiffs’ declarations specifically allege fraud inducing them to sign the arbitration agreements | Defendants argued allegations refer only to broader contract documents, not the arbitration clause | Court held plaintiffs did specifically allege fraud in inducement of the arbitration clauses, raising a question of the agreement’s validity |
| Whether a court or arbitrator decides fraud-in-the-inducement of the arbitration clause | Plaintiffs: federal court may decide fraud in inducement of arbitration clause | Defendants: threshold arbitrability should be sent to arbitration | Court applied Supreme Court precedent that fraud in the inducement of the arbitration clause may be adjudicated by the court and allowed discovery on that issue |
| Whether general contract defenses (fraud) can invalidate arbitration agreements | Plaintiffs: arbitration agreements are contracts subject to ordinary defenses like fraud, duress, unconscionability | Defendants: arbitration agreements should be enforced under the FAA absent clear proof to the contrary | Court reaffirmed that arbitration agreements are enforceable like other contracts and may be invalidated by generally applicable defenses such as fraudulent inducement |
Key Cases Cited
- Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013) (if plaintiff raises factual dispute about arbitrability, limited discovery on arbitrability is appropriate)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (fraud in inducement of the arbitration clause itself is for the court to decide)
- Rent‑A‑Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010) (arbitration agreements are subject to generally applicable contract defenses)
- Atalese v. U.S. Legal Servs. Grp., L.P., 99 A.3d 306 (N.J. 2014) (arbitration agreements must reflect mutual assent under contract law)
- NAACP of Camden Cnty. E. v. Foulke Mgmt., 24 A.3d 777 (N.J. App. Div. 2011) (agreement to arbitrate requires mutual assent)